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Loyalty means customers returning again and again to do business with you, even when you donít have the best product, the lowest price, or fastest delivery. How do you explain such seemingly irrational behavior? Simple. Good relationshipsóthe sum total of all customer interactions over timeódeliver value above and beyond what customers pay for. The total value proposition is the combination of what a customer receives and how they receive it. Companies that do both well invariably become industry leaders in market share and profitability.

Given that customers buy value, it makes perfect sense that improving the customer experience will increase loyalty, which means better customer retention. Frederick Reichheld in The Loyalty Effect reported that an multi-industry study found ìraising customer retention rates by five percentage points could increase the value of an average customer by 25 to 100 percent.î Of course, the trick is finding and keeping the right customers. Reichheld advises that loyalty-focused companies should attract and keep customers in one of the following groups:

• Customers that are inherently more loyal because they prefer long-term relationships
• Customers that are more profitable because they spend more, require less service and pay their bills on time
• Customers that find your products and services more valuable and a better fit than those of your competitors

Loyalty can be easier to achieve in a small business because ìyou can know your customers well and take care of the relationships you have,î says Janice Anderson, vice president of CRM Solutions for Lucent Technologies. ìYou get more of their wallet and loyalty since you have taken the time to care about them.î According to eLoyaltyís Julie Fitzpatrick, ìLoyalty is the result of building past positive experiences with an individual. Recognize the unique situation of a customer at any point in time,î she says. ìConsider the customerís value, their current business situation, proximity to purchase and history of goodwill to the organization.î

Measuring the effectiveness of these actions against loyalty may be the most neglected area in CRM. Organizations need to thoughtfully measure if actions actually move a customer to buy more, select other items from your company and tell their friends about you. Studies have revealed that great serviceóstill the much-appreciated exception rather than the normóis necessary but not sufficient for loyal relationships. Thatís why it is called Customer Relationship Management, not Great Service Management. ìIf you give poor service you wonít have a relationship for long,î Lucentís Anderson says, ìbut even if you give great service, you might not have a relationship if you donít take care of that relationship.î

All right, loyalty is important, but how do you foster it? In Andersonís view, the keys to building loyal relationships are:

• Target: Identify your customer segments and your high-value customers. Determine the products and services they want.
• Focus: Whatís your value? What are you really selling? ìItís not just a list of products. You need to focus on what youíre trying to be to your customers,î Anderson says.
• Service: Consistent service is great service, says Anderson. ìIf you consistently deliver on promises youíre fulfilling your brand.î
• Cost: Keeping costs low is part of the business model in almost every industry now. If you keep operating as if youíre getting $200 a trade when youíre getting $8 a trade youíre going out of business fast.

When youíre running a small boutique you have the institutional memory to do all this intuitively. Larger and more sophisticated operations need a set of CRM tools to take real-time care of customers and consistently provide a personalized experience. ìStrategically, as youíre moving customers up the ladder of loyalty, you can deepen bonds using CRM since both parties share in each othersí planning,î says Archer Consultingís Jim Blaschke. ìYou get good feedback, and itís much more a symbiotic relationship instead of just one organization selling some stuff to another.î

The negative way to express all this is ìexit barriers,î as if youíre trying to build the Berlin Wall around your client base. While East Germany concentrated on exit barriers, West Germany gave its citizenry more reasons not to emigrate. Lycosí giving out ìLycos Pointsî to users of their portal is CRM. Some might call AOLís highly successful customer collaboration program an exit barrier, but offering chat rooms, buddy lists and instant messaging sounds suspiciously like well-reasoned CRM.

Right now the paybacks for successful CRM are extraordinary. In a couple years, however, your reward for getting CRM right might be just staying in business. To get started toward more loyal relationships, focus on providing a great experience to the right customers. Over time youíll see the ìloyalty effectî improve your bottom line, which should make your experience running a business plenty rewarding too.